Empirical pricing model synthesizing Kalshi prediction contract odds, Fed funds futures implied path, and transmission elasticities across U.S. Treasury tenors, equity valuations, FX, and credit spreads.
| Asset Class | Base Spot | Model Implied | Net Shock |
|---|---|---|---|
| S&P 500 Forward P/E Equity risk premium compression | 21.40x | 21.15x | -0.25x (-1.2%) |
| U.S. Dollar Index (DXY) Interest rate differential widen | 104.20 | 104.75 | +0.55 (+0.5%) |
| 30-Year Fixed Mortgage 10Y Benchmark + MBS spread (270bps) | 6.85% | 6.94% | +9 bps |
| US High Yield OAS Refinancing hurdle / credit tightening | 345 bps | 358 bps | +13 bps |
Kalshi prediction contracts (KXFEDDECISION-26SEP) trade as discrete binary payout securities ($1.00 settlement per tranche). Unlike continuous SOFR Fed Funds futures, prediction markets capture retail and prop trader sentiment toward tail-risk events—such as unexpected re-accelerating core PCE inflation triggering hawkish rate-hike risk.
When traders re-price for a rate hike, the 2-Year Treasury yield reacts with high sensitivity (beta ~0.82 to terminal policy changes). The 10-Year and 30-Year yields reflect a counteracting combination of increased term premium vs. discounted terminal growth, producing a classic Bear Flattener.
A hawkish shock filters across borrowing costs: mortgage rates push higher as 10Y benchmarks lift, corporate option-adjusted spreads (OAS) widen as debt refinancing costs escalate, and equities experience multiple compression via higher discount rates in Gordon growth models.